For those raised on the rabbit-producing theatrics of Gordon Brown or on the political audacity of George Osborne, Philip Hammond’s budget style may take a bit of getting used to. Faced with no particular crises, reasonably promising forecast data, and the prospects of a further Budget in the autumn, the new chancellor didn’t need to do much. So, at least in aggregate, he didn’t, spending only £175m over the five years. And he particularly didn’t have many measures on tax, with the slim 64 page Red Book containing only seven pages and six individual measures (four of which were anti-avoidance) devoted to the fine art of revenue raising.
What was the theme of the Budget?
Unlike many of his predecessors, this chancellor is not much given to setting grand, over-arching themes. The days when the cover of the Red Book was not red but featured smiling pictures of families and hospital workers were abandoned by his predecessors, but even under them there were general over-arching themes. This Budget had some slight echoes of this, with nods to Fairness and Clamping Down on Avoidance and, of course, Britain being Open for Business. But really, this is not a Capital Letters Chancellor.
Who were the winners at this Budget?
While there were no massive giveaways, there were clear groups who will come out as winners. For starters, one give away was already baked into the system: the long march towards a basic personal allowance of £12,500 and a higher rate threshold (including the personal allowance) of £50,000 continues. The only news on this in the Budget was the OBR confirming that Hammond would still need to spend an extra £1.3bn between now and 2020/21 in order to achieve his target. Clearly, the chancellor didn’t want to spend that now.
Actually in the Budget itself, and responding to more recent developments, the chancellor was keen to offer an olive branch to the hard-pressed businesses impacted by sudden changes in their business rates. These were as a result of the revaluation moving the burden around the country and some shocks breach the old adage of Jean-Baptiste Colbert about the art of taxation and the plucking of the goose.
As well as promising to do better next time and consult more fully, the chancellor unveiled three measures aimed at easing the pain and reducing the hissing:
a discretionary fund of £180m to support what he described as ‘hard cases’;
a further £20m a year to help businesses transitioning out of the small business rate relief scheme; and
a £1,000 discount to smaller pubs.
Even with these changes, though, the Treasury will be taking many more feathers and there was nothing for the larger businesses. In all the focus on the sudden transition, the fact that the rate of business rates, which were 41.4% when George Osborne first became chancellor, have soared some 6.6 percentage points to 48% from this April has escaped much comment and action. The government argues that it was ever thus, and that every revaluation delivers the same amount of tax take to the exchequer, but this is some particularly odd logic. Applying the same logic to VAT would see us raising VAT rates as total spending dries up, increasing corporation tax rates as companies made less profits, or increasing income tax rates as salaries drop, none of which would appear rational. It’s unclear why business rates should be so different.
The other tax reducing measures were relatively small, with good news for HGV drivers, who will see a freeze in VED and the road user levy. More widely anticipated was the announcement of the one year deferral of the ‘Making tax digital’ provisions for those under the VAT threshold.
And who were the losers?
Perhaps due to the few tax measures in the Budget, the chancellor spent some time setting up the source of funds for his £5bn spending spree. We’ve had various public enemies in the past, from the oil companies to the banks and to second home owners but, this time, the new chancellor wanted to take cash without labelling his victims as miscreants.
In an admission to having been both an employee and self-employed in his time, the chancellor praised the work that is undertaken by the self-employed before shifting tack and going on to remind everyone that they benefit from lower NICs. While there are differences in the benefits that they receive from the state, this doesn’t justify the shortfall. The chancellor is therefore going to both increase the burden on the self-employed (through increasing the main rate of class 4 NIC from 9% to 10% from April 2018 and then to 11% from April 2019) and look to more closely align the state benefits.
In an apparent rebuke to his predecessor, Philip Hammond noted that part of the disparity resulted from George Osborne’s removal of class 2 NIC, the weekly payment that stops next year. The chancellor hinted that he could have just abandoned the abolition of class 2 NIC, but that the new system would increase the progressivity of the NIC system. More importantly, perhaps, the net effect of the two measures will raise money overall, taking almost £50 per month from those earning at or above the upper profits limit. Taken on its own, the increase generates a healthy £2bn in total over the five year scorecard period.
Staying on the theme of revising the tax system to cope with new ways of working, the chancellor took a knife to the new dividend allowance, something only in place since the start of this tax year. When George Osborne had set the allowance in the Summer Budget of 2015, he confirmed that he wanted those with share portfolios of up to £140,000 to be outside the scope of the new tax. This new chancellor clearly had different ideas, with portfolios of about £50,000 now within reach of the new dividend tax. The Treasury would argue that the increase in the limits for ISAs can justify cutting the allowance down to size, but action so quickly doesn’t promote longer term investment.
The target was clearly the owner-manager and those operating through personal service companies. While the loss of £3,000 of allowance can cost a higher rate taxpayer almost £1,000, their companies will at least benefit from next month’s one percentage point cut in corporation tax.
Taken together, both these measures seem only to be a down-payment on changes yet to come. The whole Pandora’s box that is the way that the tax system interacts with modern ways of working will come to the fore again in the summer, when Matthew Taylor submits his report on employment practices in the modern economy. Although this will not technically cover taxation, this is in good time for the chancellor to review and feature new ideas in his first ever Autumn Budget.
A different type of chancellor?
So the chancellor showed a lot of restraint, changing only enough in the tax system to fund the new spending commitments being forced upon him, rather than seeking the limelight through tax changes. Even the review of research and development tax credits concluded that there was no need to be more generous, merely to have sleeker administration.
But in at least one way, the chancellor was bolder. Rather than tiptoeing around manifesto commitments, as George Osborne did by introducing a ‘new’ dividend tax rather than changing income tax on dividends, or through introducing an apprenticeship levy rather than raising employers’ NICs (both of which would be a breach of manifesto commitments), the chancellor has been wholly straightforward and changed national insurance.
This looks to be a clear breach of the manifesto commitment. Some might see the fact that this is technically allowed under the ‘triple lock’ that was meant to legislate the manifesto commitment as ‘manifesto avoidance’ or ‘aggressive manifesto planning’, rather than being in line with the spirit of the law. However, at least this is transparent and doesn’t add insult to injury by complicating the tax system merely to obfuscate whether such a breach exists.
Any innovations?
We did see the announcement of a minimum excise tax (MET), which sets a minimum level of excise duty for any packet of cigarettes such that the total excise duty on a packet of cigarettes is the higher of either the MET, or the usual application of duties. This is intended to ensure that the exchequer does not lose out if prices fall. This has been talked about for some time, and the question now being raised is whether this innovation will migrate to other duties.
What should we be watching out for in future?
As well as the whole discussion of new ways of working, the chancellor also acknowledged that he needed to think further on how business rates penalise bricks and mortar retailers over those selling online. While this was also considered by his predecessor, this new chancellor seems less willing to let this continue into the long term.
So apart from the lack of excitement what do the numbers tell us?
First of all, they tell us that where the chancellor did raise money, he raised it big time, with his ‘fairness’ measures on the self-employed NICs and dividends scooping almost £5bn over the scorecard period. This rather dwarfs his largess on business rates and pays for the spending changes. So he delivered on his promises of a balanced Budget, but not necessarily of a boring one. The argument on the self-employed and indeed the manifesto commitment will run and run…
For those raised on the rabbit-producing theatrics of Gordon Brown or on the political audacity of George Osborne, Philip Hammond’s budget style may take a bit of getting used to. Faced with no particular crises, reasonably promising forecast data, and the prospects of a further Budget in the autumn, the new chancellor didn’t need to do much. So, at least in aggregate, he didn’t, spending only £175m over the five years. And he particularly didn’t have many measures on tax, with the slim 64 page Red Book containing only seven pages and six individual measures (four of which were anti-avoidance) devoted to the fine art of revenue raising.
What was the theme of the Budget?
Unlike many of his predecessors, this chancellor is not much given to setting grand, over-arching themes. The days when the cover of the Red Book was not red but featured smiling pictures of families and hospital workers were abandoned by his predecessors, but even under them there were general over-arching themes. This Budget had some slight echoes of this, with nods to Fairness and Clamping Down on Avoidance and, of course, Britain being Open for Business. But really, this is not a Capital Letters Chancellor.
Who were the winners at this Budget?
While there were no massive giveaways, there were clear groups who will come out as winners. For starters, one give away was already baked into the system: the long march towards a basic personal allowance of £12,500 and a higher rate threshold (including the personal allowance) of £50,000 continues. The only news on this in the Budget was the OBR confirming that Hammond would still need to spend an extra £1.3bn between now and 2020/21 in order to achieve his target. Clearly, the chancellor didn’t want to spend that now.
Actually in the Budget itself, and responding to more recent developments, the chancellor was keen to offer an olive branch to the hard-pressed businesses impacted by sudden changes in their business rates. These were as a result of the revaluation moving the burden around the country and some shocks breach the old adage of Jean-Baptiste Colbert about the art of taxation and the plucking of the goose.
As well as promising to do better next time and consult more fully, the chancellor unveiled three measures aimed at easing the pain and reducing the hissing:
a discretionary fund of £180m to support what he described as ‘hard cases’;
a further £20m a year to help businesses transitioning out of the small business rate relief scheme; and
a £1,000 discount to smaller pubs.
Even with these changes, though, the Treasury will be taking many more feathers and there was nothing for the larger businesses. In all the focus on the sudden transition, the fact that the rate of business rates, which were 41.4% when George Osborne first became chancellor, have soared some 6.6 percentage points to 48% from this April has escaped much comment and action. The government argues that it was ever thus, and that every revaluation delivers the same amount of tax take to the exchequer, but this is some particularly odd logic. Applying the same logic to VAT would see us raising VAT rates as total spending dries up, increasing corporation tax rates as companies made less profits, or increasing income tax rates as salaries drop, none of which would appear rational. It’s unclear why business rates should be so different.
The other tax reducing measures were relatively small, with good news for HGV drivers, who will see a freeze in VED and the road user levy. More widely anticipated was the announcement of the one year deferral of the ‘Making tax digital’ provisions for those under the VAT threshold.
And who were the losers?
Perhaps due to the few tax measures in the Budget, the chancellor spent some time setting up the source of funds for his £5bn spending spree. We’ve had various public enemies in the past, from the oil companies to the banks and to second home owners but, this time, the new chancellor wanted to take cash without labelling his victims as miscreants.
In an admission to having been both an employee and self-employed in his time, the chancellor praised the work that is undertaken by the self-employed before shifting tack and going on to remind everyone that they benefit from lower NICs. While there are differences in the benefits that they receive from the state, this doesn’t justify the shortfall. The chancellor is therefore going to both increase the burden on the self-employed (through increasing the main rate of class 4 NIC from 9% to 10% from April 2018 and then to 11% from April 2019) and look to more closely align the state benefits.
In an apparent rebuke to his predecessor, Philip Hammond noted that part of the disparity resulted from George Osborne’s removal of class 2 NIC, the weekly payment that stops next year. The chancellor hinted that he could have just abandoned the abolition of class 2 NIC, but that the new system would increase the progressivity of the NIC system. More importantly, perhaps, the net effect of the two measures will raise money overall, taking almost £50 per month from those earning at or above the upper profits limit. Taken on its own, the increase generates a healthy £2bn in total over the five year scorecard period.
Staying on the theme of revising the tax system to cope with new ways of working, the chancellor took a knife to the new dividend allowance, something only in place since the start of this tax year. When George Osborne had set the allowance in the Summer Budget of 2015, he confirmed that he wanted those with share portfolios of up to £140,000 to be outside the scope of the new tax. This new chancellor clearly had different ideas, with portfolios of about £50,000 now within reach of the new dividend tax. The Treasury would argue that the increase in the limits for ISAs can justify cutting the allowance down to size, but action so quickly doesn’t promote longer term investment.
The target was clearly the owner-manager and those operating through personal service companies. While the loss of £3,000 of allowance can cost a higher rate taxpayer almost £1,000, their companies will at least benefit from next month’s one percentage point cut in corporation tax.
Taken together, both these measures seem only to be a down-payment on changes yet to come. The whole Pandora’s box that is the way that the tax system interacts with modern ways of working will come to the fore again in the summer, when Matthew Taylor submits his report on employment practices in the modern economy. Although this will not technically cover taxation, this is in good time for the chancellor to review and feature new ideas in his first ever Autumn Budget.
A different type of chancellor?
So the chancellor showed a lot of restraint, changing only enough in the tax system to fund the new spending commitments being forced upon him, rather than seeking the limelight through tax changes. Even the review of research and development tax credits concluded that there was no need to be more generous, merely to have sleeker administration.
But in at least one way, the chancellor was bolder. Rather than tiptoeing around manifesto commitments, as George Osborne did by introducing a ‘new’ dividend tax rather than changing income tax on dividends, or through introducing an apprenticeship levy rather than raising employers’ NICs (both of which would be a breach of manifesto commitments), the chancellor has been wholly straightforward and changed national insurance.
This looks to be a clear breach of the manifesto commitment. Some might see the fact that this is technically allowed under the ‘triple lock’ that was meant to legislate the manifesto commitment as ‘manifesto avoidance’ or ‘aggressive manifesto planning’, rather than being in line with the spirit of the law. However, at least this is transparent and doesn’t add insult to injury by complicating the tax system merely to obfuscate whether such a breach exists.
Any innovations?
We did see the announcement of a minimum excise tax (MET), which sets a minimum level of excise duty for any packet of cigarettes such that the total excise duty on a packet of cigarettes is the higher of either the MET, or the usual application of duties. This is intended to ensure that the exchequer does not lose out if prices fall. This has been talked about for some time, and the question now being raised is whether this innovation will migrate to other duties.
What should we be watching out for in future?
As well as the whole discussion of new ways of working, the chancellor also acknowledged that he needed to think further on how business rates penalise bricks and mortar retailers over those selling online. While this was also considered by his predecessor, this new chancellor seems less willing to let this continue into the long term.
So apart from the lack of excitement what do the numbers tell us?
First of all, they tell us that where the chancellor did raise money, he raised it big time, with his ‘fairness’ measures on the self-employed NICs and dividends scooping almost £5bn over the scorecard period. This rather dwarfs his largess on business rates and pays for the spending changes. So he delivered on his promises of a balanced Budget, but not necessarily of a boring one. The argument on the self-employed and indeed the manifesto commitment will run and run…
